Good afternoon. Welcome to Aviat Network's third quarter fiscal 2026 earnings call. Currently, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Andrew Fredrickson, Vice President, Corporate Finance. Thank you. You may begin.

Thank you and welcome to Aviat Network's third quarter fiscal 2026 results conference call and webcast. You can find our press release and updated investor presentation in the IR section of our website at www.aviatnetworks.com along with a replay of today's call. With me today are Pete Smith, Aviat's president and CEO, who will begin with opening remarks on the company's fiscal quarter, followed by Andy Schmidt, CFO, to review the financial results for the quarter. Pete will then provide closing remarks on Aviat's strategy and outlook, followed by a question and answer session. Janana Mikulanka, Aviat's Chief Accounting Officer, is also with us on the call. As a reminder, during today's call and webcast, management may make forward-looking statements regarding Aviat's business, including but not limited to statements relating to fiscal guidance, financial projections, business drivers, new products and expansions, and economic activity in different regions. These and other forward-looking statements reflect the company's opinions only as of the date of this call and webcast and involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements. Additional information on factors that could cause actual results to differ materially from the statements expressed or implied on this call can be found in our most recent filings with the SEC. The company undertakes no obligation to revise or make public any revision of these forward-looking statements in light of new information or future events. Additionally, during today's call and webcast, management will reference both GAAP and non-GAAP financial measures. Please refer to our press release, which is available in the IR section of our website at www.aviatnetworks.com, and financial tables therein, which include a gap to non-gap reconciliation and other supplemental financial information. At this time, I would like to turn the call over to Aviat's President and CEO, Pete Smith. Pete? Thanks, Andrew, and good

afternoon. Let's review the highlights from the third quarter. Total revenues of $100.0 million, adjusted EBITDA of $4.4 million, non-GAAP EPS of six cents, lowered inventories by $4.0 million versus the December quarter, maintained a trailing 12-month book-to-bill ratio greater than 1.0. Quarterly results were impacted by the conflict in the Middle East, where we saw certain project pushouts and unfavorable end-of-quarter demand shifts in several Tier 1 customers, totaling approximately $9 million in revenue. Now, let me talk more about our end markets and key developments. In the U.S., we see reason for optimism in the quarters ahead as we gain increased visibility on timing of our multi-dwelling unit, or MDU, opportunity. growing demand from utilities as they invest to meet increased power demand from artificial intelligence build outs and the nearing arrival of the broadband equity access and deployment or bead program on the mvu we have increased confidence in the level of commitment to this project from our tier one customer and we believe that we have secured a favorite position as the supplier of choice this is translating to increase visibility on timing for the markets we have won and opening the door to additional market areas for deployment for the projects in progress we have installations occurring now and through the rest of q4 these are still relatively small and we expect a larger step up during fiscal 2027 as the avian installations progress and we compete for additional markets related to the MDU opportunity we are seeing more prospects to provide services and other value-added solutions to our tier one customer overall we are feeling better about this opportunity today than at any other previous point and believe we will have meaningful revenue contribution from this project in fiscal year 2027 further we have validated our next generation offering in this area. Should subscriber growth materialize, we anticipate demand for this next-gen product in fiscal year 2028. Private networks remain Aviat's largest segment today, and within private networks, utilities are Aviat's second-largest customer group in this segment. Aviat has been strategically focused on growing our presence and offerings with utilities over the last several years with product innovations like our ultra-high-powered 11 gigahertz radio and the 2024 acquisition of 4RF. Even prior to the demand brought on by artificial intelligence and data center build-outs, there was a growing need for increased investment in America's grid from a modernization and reliability standpoint. Today, the outlook for Aviat and utilities is quite robust. Recent industry reports suggest that utilities will deploy $1.4 trillion on capital spending plans over the next five years. This forecast is up over 20% versus a year ago. Approximately half of this spend will go towards transmission and distribution, where Avias network hardware is critical for smart grid connectivity and management, substation monitoring and security, crude communications, and wildfire detection. Power generation has become the primary constraint and a fundamental determinant of growth for artificial intelligence or AI. This build out of the grid lifts the importance of mission-critical communication, and Aviat is well-positioned to capture increasing share of demand in this market. The utility segment is approaching 10% of our overall business. Our funnel of opportunity is strong, and the discussions we are having with many of the largest utilities in the U.S. signals that this growth opportunity will remain for several years ahead. Lastly, on the BEAD program, our customers continue to signal that purchase orders related to the program should begin in mid to late calendar 2026. This is consistent with the message we have told investors for approximately a year now. However, as final approvals are made, the set of opportunities is beginning to take shape. 46 of the 56 states and territories have signed their final award agreement. The total funding for the approved deployment spend to date is approximately $20 billion. The size of Aviat's opportunity depends on the allocation of B funds towards fixed wireless access, which in our estimation stands between 10% and 15% of the award dollars. The allocation of funds to wireless has been increasing over time. Feedback from four of our wireless Internet service provider customers who have all won Bede deployment projects signal that calendar 2027 will likely see the largest ramp purchase orders for Aviat, but we still remain very early in the fund deployment lifecycle and will provide updates as available. Aviat stands at the ready to assist all of its customers with bead opportunities thanks to its Build America, Buy America certifications, our e-commerce Aviat store presence, and our leading position in serving rural broadband needs. Apart from these growth drivers, we've invested in our roadmap. We've taken our North American all-indoor radio to international markets. We are also bringing PasoLink radios to North America in early fiscal 2027. Both these represent install-based opportunities for an addressable market of over $250 million. I will now turn the call over to Andy to go through the financial results.

Thanks, Pete, and good afternoon, everyone. Before going through the financial results, I'd like to briefly introduce Janana Mikalinka, who joined Aviat in January as her Chief Accounting Officer. She brings with her over 30 years of accounting experience, including previously serving as Chief Accounting Officer and Corporate Controller at other public companies. She's already making a great impact to the overall AVIET team and will help us to achieve her goals. Welcome, Jananna. Now, I'll review some of our key fiscal 2026 third quarter results. Please note that our detailed financials can be found in our press release and all comparisons discussed are between the third quarter of fiscal year 2026 in the third quarter fiscal year 2025 unless otherwise noted for the third quarter we reported total revenues of a hundred million as compared to a hundred and twelve point six million dollars for the same period last year revenues for the nine-month period or three hundred and eighteen point eight million dollars versus $319.3 million for the year-ago nine-month period. North America, which comprised 46.2% of our total revenues for the quarter, was $46.2 million. International revenues, which made up 53.8% of total revenues, were $53.8 million for the quarter. On a year-to-date basis, North American revenues were $151.7 million, up by $2.1 million, or 1.4 percent, versus the same period last year. International revenues were $167.1 million in the first nine months of fiscal 2026, as compared to $169.7 million in the first nine months of fiscal 2025. 5. Gross margins in the third quarter were 29.3% on a gap basis and 29.4% on a non-gap basis. This compares to 34.9% gap and 35.8% non-gap in prior year periods. The change in gross margins is primarily due to volume, regional, and product mix in the quarter as compared to the year-ago period. For the first nine months of fiscal 2026, gross margins were consistent with their prior year. Gross margins were 31.7 percent on a gap basis, 32.1 percent on a non-gap basis. This compares to 31.3 percent gap and 32.1 percent non-gap versus the period last year. In regard to operating expense, we continue to work on opportunities to increase process efficiencies to drive down our expense. Third quarter gap operating expense were $28.3 million, down versus $30 million in a year ago period. Non-gap operating expense, which exclude impact of restructuring charges, share-based compensation and deal costs, were $26.4 million dollars or 0.8 million dollars lower than the year ago period. Third quarter operating income was 0.9 million dollars on a gap basis and 3 million dollars on a non-gap basis. This compares to 9.3 million dollars gap and 13 million non-gap in the year ago period. For the nine-month period, gap operating income was 13.4 million up 11.7 million versus the first nine months of last fiscal year. Year-to-date non-GAAP operating income was $20.5 million, up $4.4 million or 27.6% for a year-ago period. The third quarter tax provision was $0.2 million. As a reminder, as of fiscal 2025 year-end, the company has over $450 million of net operating losses or nols that will continue to generate shareholder value via minimal cash tax payments for the foreseeable future as it relates to the valuation allowance against some of our formal possibility that within the next few quarters we will be able to release a significant portion of the valuation allowance this is good news for aviat shareholders the potential release of the valuation allowance is due to increase in sustained profitability and our international entities thanks to revenue growth and cost management similar to when aviat released its valuation allowance in the u.s approximately five years ago this will create a one-time gap income benefit to the company in the quarter the release occurs while exact timing of this release is uncertain it is reasonable that it could occur at some point in the next four quarters continuing third quarter gap net loss was 2.1 million dollars and non-gap net income was a positive 0.7 million dollars which excludes restructuring charges share-based compensation m&a related and other non-recurring expenses and non-cash and also the non-cash tax provision Third quarter gap loss per share was $0.16 on a fully diluted basis, and non-gap earnings per share came out at a positive $0.06 on a fully diluted basis. Adjusted EBITDA for the third quarter was $4.4 million, or 4.4% of revenues. For the nine-month, year-to-date period, adjusted EBITDA was $24.8 million, an improvement of $2.8 million or 12.5% versus a comparable period last year. The lower adjusted EBITDA margin this period was driven primarily by the unfavorable timing of Q3 revenues previously discussed, which was partially offset by improving operating expense performance. We expect a seasonally strong Q4 revenue, which will drive EBITDA margins back to expected levels. Moving on to the balance sheet. Our cash and marketable securities at the end of the third quarter were $78.1 million. Outstanding debt was $104.3 million, bringing the net debt position to $26.1 million. Aviate made continued improvements in its balance sheet this quarter. Unbilled receivables were lowered for the second consecutive quarter. The third quarter balance was 5.4 million dollars lower compared to the fiscal 2026 second quarter ending balance this brings our total unbilled receivable balance to 85.3 million when compared against our short and long-term advanced payments and under revenue balance of 77.6 million dollars the net of the two balances is 7.7 million dollars we would consider this to be in the normal range of where these two balances would net out inventories were also lower sequentially into quarter by four million dollars cash in the quarter was partially used to pay down accounts payable which was lowered by 33.3 million dollars sequentially this progress and normalizing working capital strengthens obvious ability to use its balance sheet to further its growth opportunities Lastly, Aviat repurchased approximately 20,000 shares in the quarter for its $0.5 million. With that, I'll turn it back to Pete for some final comments. Pete?

Thanks, Andy. I will now provide an update on our fiscal 2026 guidance. Based on our year-to-date results and our current outlook for the fourth quarter, inclusive of the war-induced push-outs, we will continue to address our expense base and will be continuing to pursue cost-saving initiatives. We're updating our fiscal 2026 guidance to be full-year revenues to be in the range of $428 to $440 million, full-year adjusted EBITDA to be in the range of $35 to $40 million. Our Q3 challenge started at the beginning of March, and the challenge is timing-related. Despite this temporary setback, we see normalization of demand in Q4 and are highly encouraged by the progress of our growth initiatives and the potential impact on FY27. With that, operator, let's open up for questions.

As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jason Schmidt of Lake Street. Please go ahead, Jason.

Hey, guys. Thanks for taking my questions. Pete, just want to start with that $9 million in push-outs. Do you expect to recognize those orders here in Q4?

So, I think some of them, and look, we want to be conservative with respect to, looks like, though, there was more conflict today. I would say some of that has already shipped, and we're just, you know, So at the, you know, in the March timeframe, some of the tier ones got conservative and we just want to be careful about potential repeats. So that's why we guided the way we did. I can definitively say some of that has already, you know, shipped in the first two weeks of the current quarter.

Okay, that's helpful. And then looking at the MDU opportunity, it definitely sounds like you guys are making great traction there. Can you remind us how we should think about the size of this opportunity?

Yeah. Let me just give a little more flavor. So we have live deployments in more than five markets. All of those markets are open for sale. The size of the opportunity is going to be tied to the all-important number of subscribers that sign up. Early indications are favorable. We see with those deployments an opportunity for additional services and insight and work. We would be comfortable saying it's an eight-figure opportunity in fiscal year 27. Now, the problem with that is eight figures goes from $10 million to $99. I think that's where we're comfortable saying eight, and over the next two or three months, we think we can be more exacting in how big of that opportunity. It's the most exciting growth program in Aviat, and we're totally focused. We'll say eight figures for now, and I would say that when we get through our year-end and we incorporate this into FY27 guidance, we can be more specific and give you a more narrow range, Jason.

That's fair. And then just the last one for me, and I'll jump back into Q. Last quarter, you highlighted some nice traction with your LTE router. Just curious where that pipeline is today and what you've seen over this past quarter. Yeah. So, you know, our upgrade on the

Apriza LTE router, we feel really good about it. We're on track for the overall Apriza business to exceed 50 percent bookings growth this fiscal year. We're also starting to attach incremental software and accessories to our product sales. We're seeing expansion across all segments, including utilities, oil and gas, public safety, and all geographies with strength in North America and Europe. The police applications are small but growing, and we've received initial orders in public safety in the U.S., Europe, and Latin America. That was a, you know, the platform for this is a small, was a small acquisition, so it's a small base, but it's growing. And to put this in context, you know, microwave backhaul is, you know, let's call it a slow growth market when something like the Middle East conflict happens. It's tough, and we really feel our growth program and fixed wireless access around MDU, the APRISA platform for public safety and utilities. These are the things that are going to permit us in FY27 to outgrow the microwave market.

Okay. Sounds good. Thanks a lot.

Thank you. Our next question comes from the line of Scott Ciro of Roth Capital Partners. Your line is open.

Hey, good afternoon. Thanks for taking the questions. Hey, Pete, maybe just to dive in in terms of the guidance, it sounds like we had $9 million in pushouts, some of which has shipped already into the fourth quarter, but it's still a pretty wide variance out there of $109 to around $121 million. I'm wondering if you gave us some of the puts and takes. It sounds like the Mideast continues to be a little bit of a headwind there, but I'm kind of wondering what you see at the higher end of the range and lower end of the range. And as part of that, the gross margin sounds like that starts to recover with some utilization. But I'm wondering if you could clarify a little bit more. It sounds like you're talking about it returning more to normal levels. I just want to clarify, is that 32%, 33% that we should be thinking about? And I had a couple follow-ups.

All right, go ahead. Hey, Scott, this is Andy. Good to hear from you. I'll just start with the gross margin part. You're exactly right. You know, our year-to-date gross margin, 32%. You know, plus, once we get back to normal volumes, Q4 is our best quarter seasonally. So we expect to have a good Q4. Once we're back at normal volumes, you're going to see, again, expected performance in gross margin. And just to reiterate, we didn't see gross margins drop due to price compression. Not at all. Again, pricing is in good shape. We just have to get back to expected volumes.

Okay. And then with the range, so we want to, you know, and let's say we have the same end of quarter dynamics where tier ones push out and we're not able to get stuff into the Middle East. And, you know, today in India, they said they had a jet fuel. So we're hedging on that, you know, so that's why there's the range and just, you know, for a company at our scale. Well, it's harder to deal with these risks, and we want to, you know, not have the difficulty in achieving the expectations we set at the end of the June quarter. So that's why there's the range. We, you know, obviously we want to do as well as we can to be, to deliver on the higher end, but we want to be conservative and acknowledge the environment as it is.

Hey, maybe a couple quick follow-ups for Andy, just in terms of the gross margins, you know, in terms of how you're managing memory and incremental freight costs now. So are you still comfortable with maintaining that gross margin outlook given the current pricing environment that we're seeing there? And maybe a quick follow-up on the balance sheet as well, you know, small improvements again this quarter. I'm wondering if there's a longer-term target that you could give us in terms of expected free cash flow that you'd be able to generate in terms of working down DSOs and improving inventory terms.

Sure. So I'll start with the gross margin. And, you know, to your point, you bring up the usual suspects in terms of, let's call it inflationary items. Again, this company works very diligently in terms of offsets to inflationary items. So, again, that comes down to negotiating power in terms of commodities all the way down to utilization, let's say, in terms of our efficiencies internally. So, again, we work, you know, diligently in terms of looking for offsets to normal inflation items. as you might hear from your other coverage universe. In terms of balance sheet, yes, we still see a lot of greenfield opportunities in terms of addressing both our accounts receivable, accounts receivable in terms of aged accounts are really next on our barometer. We expect unbilled to continue to come down. We have good traction, two quarters in a row, which means we've cracked the nut in terms of the equation of how to attack that. That's good. we expect inventories to continue to improve. It all drives basically cash flow that should exceed adjusted EBITDA. So that's what we're shooting for. And we see clear daylight in terms of next number of quarters continuing this trend. We don't expect it to end. And if I could just... Oh, sorry.

Well, Scott, did you want the memory and freight stuff or... Yeah, please.

You got it.

Yeah, so look, memory in a microwave radios is a small part of the bomb. We were in a good inventory position. We could see, you know, probably two quarters out there being a little bit of inflation. We will work to offset that with respect to price. I would say in the recently concluded quarter, there was some freight inflation, And going forward, we'll adjust our freight prices as well. So that's to answer the inflation part of your question. Memory is small. And then if you want to think about what we see in supply and demand and components, I can imagine a couple quarters out that trailing edge CPUs enter the dialogue that is occurring with memory. but that does not impact us yet, and we will probably buy ahead on CPUs where – the trailing of CPUs where it makes sense. Great help.

And, Pete, if I could, two just larger, more macro kind of follow-ups, if you will. Nokia, you know, there's been hearing out there that in terms of their timeline and expected divestiture, of the wireless transmission business that's creating some opportunities for other vendors in Europe and elsewhere. I'm wondering what you're seeing on that front. And also, I've gotten some questions as it relates to Nokia's FWA business being sold to Ensego, how that impacts you. And secondly, just in terms of the MDU opportunity, are there any other technical milestones that you need to hit at this point? Or are we good and we're just kind of waiting for the MDU customer to start to ramp.

So there's no more aviat tactical milestones, right? Or let's say in the next six to nine months, we need to deliver the next generation project or product configuration, and we're on track for that. And really right now it's working out our fixed wireless with the customer's back office and everything else that's in the overall stack in delivering fixed wireless to apartment buildings. So we feel really good, and we think that, you know, our microwave system engineering is really winning the day versus the competition there. You know, with respect to, you know, what Nokia announced on Capital Markets Day back in November of 2025. I think the playing field is level between everyone who's listening on the call that that announcement has happened, and we know very little beyond that. The Ensego purchase of fixed wireless access would suggest that Nokia is executing on the announcement that they made in the back of November, but but I don't have anything further to add with respect to their intent to execute on the microwave portion. And, you know, the other part of your question is what is it doing in the competitive landscape? I think, you know, I don't know if and when it will come for sale. I would say Aviat and Aviat's competitors are very engaged in developing alternatives should that property be trade or should that property become, let's say, neglected within the portfolio of Nokia. So I don't know what's going to happen with respect to the sale. I do know that we and our competitors are active in terms of trying to make sure that the customer base has microwave solutions.

Great. Thanks so much. I'll get back in the queue.

Thank you. Once again, to ask a question, please press star 11 on your telephone. So our next question comes from the line of Theodore O'Neill of Litchfield Hills Research. Your line is open, Theodore.

Thanks very much. Pete, just to follow up on our previous answer, you mentioned that an issue in India was related to jet fuel. And I was wondering, are these issues related to simply you or your customers getting around, or is it trying to avoid a conflict zone?

It's not, it's trying to move stuff. You need to have jet fuel to move. And that's, you know, the comment about freight inflation is tied to the constriction and supply of jet fuel. And that was a headline I wrote around from India. But where does it really show up is it shows up in our freight costs.

And my other question is, there was an executive order about the Defense Production Act amended for the grid infrastructure, and I was wondering if that is going to drive some private network business at the utilities, and by extension, if that would also drive some private network business to the AI data centers.

Okay. I think, yeah, so the Defense Product Act, it was, you know, recently a presidential executive order to push the modernization of the grid. I don't believe that that was for data center or AI. It was just because the country has not focused enough on the core grid and reducing bottlenecks and the grid expansion and resilience. And what we see from that is it didn't call out microwave or critical communications, but as the modernization push happens, we see an increased ramping grid builds, our pipeline of utility opportunities is increasing, and, you know, as the utility yard gets bigger, the need to extend the microwave coverage goes up. Then also in that executive order, there was a focus on national defense and foreign supply risks. You know, we are Build America by America compliant. We're the only microwave company headquartered in North America. Our utility business is approaching, you know, it's slightly under 10%. So we think that this national focus is going to pay dividends for us going forward. Thank you for this. Thank you for the questions. Yep. Okay. Thanks very

much. Thank you. I would now like to turn the conference back to Pete Smith for closing remarks,

sir. I'd like to thank everybody for joining. You know, the Middle East conflict was certainly a drag on demand and margins. We are very excited about our growth programs. We feel like they're on the brink of making meaningful impacts, and we look forward to seeing that, particularly in FY27, and then finally, we see we're coming up to our fiscal year end, and we look forward to giving you an update on the full year and the path forward for FY27 with MDU, with BEAD, with the utility and the PISA platforms. Thank you, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.